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By Gary M. Schuster, Esq.
ART
TIMES Jan/Feb, 2005
Those
who appreciate
art can support the arts in many ways. The oldest way, which remains fully effective
today, is to purchase the work of artists.
Back in the age of kings and emperors, composers like
Mozart and Bach, and painters like da Vinci and Michelangelo, would be retained
on the court staff along with chefs, groundskeepers and butlers. The patronage
of a rich and powerful employer brought the artist not only room and board but
also high quality facilities and materials to work with. Noblemen would vie
to retain the most talented artists, and take pride in their ability to spot
talent. Of course, if a nobleman happened upon a superstar, the king or emperor
or pope might well make an offer that no one could refuse (sounds a lot like
Yankee baseball, don’t you think?).
While royalty has suffered a steady decline, our current
government continues to promote the arts through the tax code, enabling the
existence of non-profit organizations such as museums, schools and presenting
groups. Donations to these organizations may be wholly or partly tax-deductible.
The non-profit movement enables the creation and dissemination of art that would
not otherwise earn enough on its own to be viable.
Even with the advent of the non-profit movement, much
art remains for-profit, and occasionally very profitable. For more than a century,
daring patrons have invested in theatrical shows and musicals. Along Broadway,
these investors became known as “angels”. The seducing of such investors
was unforgettably spoofed in the hit film and musical, “The Producers”.
While investing in shows is very risky, the payoff can be so spectacular that
today public corporations like Disney and Clear Channel are major producers
and investors in the theater. Music and film continue to be vibrant and primarily
for-profit art forms.
As
an attorney in the arts and entertainment I have met and represented countless
artists in need of an investment to help bring their art work and business to
a new level. I have also represented a smaller number of a much scarcer animal,
the arts angel. I find that these people share four qualities: they become smitten
with a particular artist, art form or genre; they have self-made wealth; they
are relatively young (40-60) and energetic; and they want to use their business
experience to help grow the artist’s business.
That last part is most interesting. In my experience
angels do not want to simply invest money as if it were a stock or mutual fund.
With a lifetime of experience and still considerable energy, they want hands-on
involvement in some aspect of the business, whether it be production, distribution,
marketing or even accounting. Some of this is prudence – keeping a close
eye on the money and how it is used. But some of it is also what I can only
call the hang-out factor. Why do people invest in racehorses? To justify spending
so much time hanging out at the track. Why do people invest in musicals? To
justify spending so much time hanging out backstage. Depending on the investment,
arts angels get to hang out at gallery openings, film premiers, record releases,
fashion shows, concerts, club dates or any number of arts events. They invest
because that’s where they want to be. You could say that in some cases,
those who can’t do . . . invest!
Of
course, angels are also motivated by the simple desire to help talented, hard-working
people succeed. And the angels bring to that task their customary energy, skills
and resources.
While donating to non-profit arts is all well and good,
it seems that investing in for-profit arts has been neglected. Certainly one
could simply buy stock in Time-Warner or Sony, but where’s the fun in
that? Someone contemplating becoming an arts angel should consider the following:
•What artist or art form has you smitten?
•Read the industry trade publication.
•Analyze the possible revenue streams in that art form.
•Discuss with the artist what is needed to get the artist to the
next rung on the ladder. Keep in mind that the artist might be wrong! (That’s
why artists have managers.) You consider what you feel is needed to advance
the artist’s career. Once everyone is in agreement, work up a budget and
a schedule.
•Try to incorporate small steps: a small initial investment and
then an assessment of progress, to be followed by a larger investment and another
assessment, and so on. A series of options, perhaps.
•Consider the appropriate business structure. A direct personal
loan? Formation of a partnership, corporation or limited liability company?
If large sums are needed, to be raised from several people, perhaps a private
placement offering?
•What is your role in the enterprise? And that of the artist?
•What percentage of revenues are you and the artist to receive?
What deductions from gross revenues should be allowed? Will the artist receive
a salary or advance or other interim form of compensation not based on revenue?
•Who owns the business created? Who owns the artwork created? Who
owns copyrights and trademarks? What are the percentages of ownership?
•What degree of control do you have over purely creative or artistic
matters?
•What do you get besides money? Credit, like Executive Producer
on a film? Special thanks in the liner notes of an album? Invitations to events,
or preferred seating? A quantity of goods to keep, sell or give away?
•Exit strategy. The artist buys you out. You sell out to the artist
or to a third party. On the other hand, maybe you feel that you are building
something and want to leave it to your kids.
•Everything’s negotiable! There is no “standard”
deal. “Fair” and “reasonable” are very elusive. Sometimes
you must simply resort to the stomach test: Do the terms of the deal make one
of you nauseous?
•Be prepared to lose your entire investment! Invest with “play
money” only.
In the world of securities law there is the concept of an “accredited
investor”. One kind of “accredited investor” is an individual
with a net worth in excess of $1 million, or annual income in excess of $200,000
for the past two years, and a reasonable expectation of reaching the same income
level in the current year. Accredited investors are considered to be both financially
sophisticated (or at least they can hire advisers who are) and capable of withstanding
the loss of their entire investment without endangering their financial security.
Only “accredited investors” should consider becoming arts angels.
Betting on art is very risky. But if the art you love could turn a profit,
and you've got the play money, who wouldn’t want to be an angel?
(Gary M. Schuster is
an associate attorney with the law firm of
